Creative destruction in Canada

Canada is much better off nurturing entrepreneurs than trying to bail out the past.

The creative destruction fostered by the Internet and open source struck Canada hard over the weekend.

Nortel, once one of the Big Three in telecom equipment (Lucent, now part of Alcatel and Siemens were the others) is being broken up for pennies on the dollar. Its stock is now officially worthless.

The end became obvious this weekend in the $650 million sale of its CDMA wireless unit, ironically to a joint venture of Siemens and Nokia. (Their new parent is trying to reassure Nortel LTE employees with an open letter today.)

To anyone whom, like me, went to a Supercomm in the mid-1990s the fall is humbling. But it was both inevitable and necessary.

Inevitable because Nortel, like Siemens and Lucent (the Bell equipment arm before being renamed and spun-out), made most of its money on huge switches for analog phone service, mostly to a small group of carriers.

The Internet killed that business. Voice is a low-bandwidth application.

Even had Nortel seen the handwriting on the wall and moved into the data networking area dominated now by Cisco, it would have quickly faced both the Chinese giant Huawei and open source outfits like Vyatta, killing its margins.

The necessity still has fall-out in Canada's loss of international business prestige. It reminds me a bit of what happened to Texas banking in the 1980s, when the state's biggest banks were all sold to competitors in New York, California and North Carolina.

Back then there was a great feeling of loss, a fear the state was losing its autonomy and its economic center. Canadians may feel that way today.

But Texas came back. That's the point. Canada is much better off nurturing entrepreneurs than trying to bail out the past.